UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

(Mark One)

(x) Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934

For the quarterly period ended June 30, 1998

( )  Transition  Report  pursuant  to  Section  13 or 15 (d)  of the  Securities
Exchange Act of 1934

For   the    transition    period    from    -----------   to ------------------

Commission File Number: 0-23323

               THE BRYAN COLLEGE STATION FINANCIAL HOLDING COMPANY
               ---------------------------------------------------
             (Exact name of registrant as specified in its charter)

                                    DELAWARE
                                    --------
        (State or other jurissdication of incorporation of organization)

                                   36-4153491
                                   ----------

                      (I.R.S. employer identification no.)

                      2900 Texas Avenue, Bryan, Texas 77802

               (Address of principal executive offices) (Zip Code)

                                 (409) 779-2900
                                  -------------

               (Registrants telephone number, including area code)

          Former name,  former  address and former fiscal year, if changed since
last report

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934 during the proceeding 12 months (or for such shorter period that the issuer
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.

                              Yes x_______ No______

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the latest practicable date.

                                             Shares Outstanding
                 Class                       as of August 14, 1998
               ---------                    -----------------------
              Common Stock                         389,436


<PAGE>
               THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
                                  Bryan, Texas
                                   FORM 10-QSB
                         Nine Months Ended June 30, 1998


                         PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

                                                                            Page

     Consolidated Statements of Financial Condition.........................   3

     Consolidated Statements of Income......................................   4

     Consolidated Statements of Changes in Stockholders' Equity.............   5

     Consolidated Statements of Cash Flows..................................   6

     Notes to Consolidated Financial Statements............................. 7-9


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................  10-20


                           PART II - OTHER INFORMATION

Other Information..........................................................   21

Signatures.................................................................   22



                                       2

<PAGE>



                       THE BRYAN-COLLEGE STATION FINANCIAL
                                 HOLDING COMPANY
                          BRYAN/COLLEGE STATION, TEXAS
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                      June 30, 1998 and September 30, 1997
                       In thousands, except per share data

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                                     June 30,      September 30,
                                                                                       1998            1997
                                                                                       ----            ----
<S>                                                                                 <C>            <C>        
ASSETS
Cash and due from banks                                                             $     1,444    $       756
Interest-bearing deposits in other financial institutions                                 3,417          3,675
                                                                                    -----------    -----------
     Total cash and cash equivalents                                                      4,861          4,431

Mortgage-backed securities held-to-maturity (estimated
  market value:  June 1998 - $997; September 1997 - $1,129)                               1,007          1,150
Loans held for sale                                                                         394            204
Loans receivable                                                                         67,602         65,033
Federal Home Loan Bank stock                                                                377            896
Real estate owned and in judgment                                                           398            520
Premises and equipment                                                                    1,637          1,117
Accrued interest receivable                                                                 551            537
Other assets                                                                              1,730          1,201
                                                                                    -----------    -----------
                                                                                    $    78,557    $    75,089
                                                                                    ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
     Deposits                                                                       $    69,120    $    58,808
     Advance payments by borrowers for insurance and taxes                                  671            862
     Advance from Federal Home Loan Bank                                                  2,000         10,000
     Minority interest                                                                      872              -
     Debentures                                                                           3,629              -
     Accrued interest payable and other liabilities                                         432            585
                                                                                    -----------    -----------
                                                                                         76,724         70,255

Stockholders' equity
     Common stock - par value $.01 per share;
       authorized 3,000,000 shares, issued 389,436                                            4              2
     Additional paid-in capital                                                           1,849          2,743
     Retained earnings, substantially restricted                                            (20)         2,088
                                                                                    ------------   -----------
                                                                                          1,833          4,834
                                                                                    -----------    -----------
                                                                                    $    78,557    $    75,089
                                                                                    ===========    ===========
</TABLE>


                                       3

<PAGE>



                       THE BRYAN-COLLEGE STATION FINANCIAL
                                 HOLDING COMPANY
                          BRYAN/COLLEGE STATION, TEXAS
                        CONSOLIDATED STATEMENTS OF INCOME
                       In thousands, except per share data

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                  Nine months ended        Three months ended
                                                                      June  30,                 June  30,
                                                                 1998          1997         1998         1997
                                                                 ----          ----         ----         ----
<S>                                                           <C>          <C>          <C>          <C>       
Interest income
    Loans                                                     $    4,903   $    3,847   $    1,686   $    1,334
    Mortgage-backed securities                                        48           56           15           18
    Other                                                            117          104           33           39
                                                              ----------   ----------   ----------   ----------
       Total interest income                                       5,068        4,007        1,734        1,391

Interest expense
    Deposits                                                       2,173        1,825          761          639
    Other borrowings                                                 311           57          128           24
                                                              ----------   ----------   ----------   ----------
       Total interest expense                                      2,484        1,882          889          663
                                                              ----------   ----------   ----------   ----------

NET INTEREST INCOME                                                2,584        2,125          845          728

Provision for loan losses                                             79           17           50           15
                                                              ----------   ----------   ----------   ----------

NET INTEREST INCOME AFTER PROVISION FOR LOAN                       2,505        2,108          795          713

Noninterest income
    Service charges                                                  429          449          171          135
    Net gain on sale of loans and mortgage
      servicing rights                                               135           99           56           40
    Other                                                             82           41           20           41
                                                              ----------   ----------   ----------   ----------
       Total noninterest income                                      646          589          247          216

Noninterest expenses
    Compensation and benefits                                      1,376          988          514          347
    Occupancy and equipment expense                                  303          239          118           76
    Federal insurance premiums                                        28           36           10            8
    Net (gain)/loss on real estate owned                              13            2            -            4
    Professional fees                                                136           95           52           25
    Data processing                                                  143          125           48           40
    Other                                                            767          501          332          165
                                                              ----------   ----------   ----------   ----------
       Total noninterest expenses                                  2,766        1,986        1,074          665
                                                              ----------   ----------   ----------   ----------

INCOME (LOSS) BEFORE INCOME TAX EXPENSE                              385          711          (32)         264

Income tax expense (benefit)                                         131          242          (11)          90
                                                              ----------   ----------   -----------  ----------

NET INCOME     (loss)                                                254          469          (21)         174
Bank Preferred stock dividends                                       (44)         (66)           -          (22)
                                                              -----------  ----------   ----------   ----------

Net income (loss) available to shareholders                   $      210   $      403   $      (21)  $      152
                                                              ==========   ==========   ===========  ==========

Earnings (loss) per share
    Basic                                                     $      .45   $      .67   $     (.05)  $      .25
                                                              ==========   ==========   ===========  ==========
    Diluted                                                   $      .45   $      .66   $     (.05)  $      .25
                                                              ==========   ==========   ===========  ==========
</TABLE>


                                       4

<PAGE>



                       THE BRYAN-COLLEGE STATION FINANCIAL
                                 HOLDING COMPANY
                          BRYAN/COLLEGE STATION, TEXAS
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                             June 30, 1998 and 1997
                       In thousands, except per share data

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                        Nine months ended               Three months ended
                                                            June 30,                         June 30,
                                                      1998             1997            1998             1997
                                                      ----             ----            ----             ----
<S>                                                <C>             <C>              <C>            <C>        
Balance at beginning of period                     $     4,834     $     4,316      $     4,945    $     4,567

Net income (loss)                                          254             469              (21)           174

Issuance of 200,000 shares common stock                  2,000               -            2,000              -

Purchase of Bank common stock                           (3,943)              -           (3,943)             -

Minority interest                                         (872)              -             (872)             -

Stock issue costs                                         (276)              -             (276)             -

Cash dividends paid                                       (164)            (66)               -            (22)
                                                   ------------    -----------      -----------    -----------

Balance at June 30,                                $     1,833     $     4,719      $     1,833    $     4,719
                                                   ===========     ===========      ===========    ===========
</TABLE>


                                       5

<PAGE>



                       THE BRYAN-COLLEGE STATION FINANCIAL
                                 HOLDING COMPANY
                          BRYAN/COLLEGE STATION, TEXAS
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  In thousands

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                  Nine months ended        Three months ended
                                                                      June  30,                 June 30,
                                                                 1998          1997         1998         1997
                                                                 ----          ----         ----         ----
<S>                                                           <C>          <C>          <C>          <C>       
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income (loss)                                         $      254   $      469   $      (21)  $      174
    Adjustments to reconcile net income to net
      cash from operating activities
       Depreciation                                                  190          123           93           40
       Net change in loans held for sale                            (129)         (13)        (218)         904
       Amortization of deferred loan origination fees                (31)          35          (59)          32
       Net gains on sales of
          Real estate owned                                           (4)         (12)          (5)         (10)
          Mortgage loans and servicing rights                       (135)         (99)         (56)         (40)
       Provision for losses on loans and real estate owned            79           17           50           15
       Federal Home Loan Bank stock dividend                         (33)         (37)          (6)         (13)
       Change in
          Accrued interest receivable and other assets               (67)        (523)          (4)        (225)
          Accrued interest payable and other liabilities            (153)        (103)         (81)         189
                                                              -----------  -----------  -----------  ----------
              Net cash from operating activities                     (29)        (143)        (307)       1,066

CASH FLOWS FROM INVESTING ACTIVITIES
    Net increase in loans receivable                              (2,496)      (9,116)        (649)      (5,557)
    Proceeds from maturity of securities                               -        1,000            -            -
    Principal payments on mortgage-backed securities
      and collateralized mortgage obligations                        140          103           35           31
    Proceeds from sale of mortgage servicing rights                   74           56           26           26
    Redemption of FHLB stock                                         552            -          552            -
    Investment in office properties and equipment, net              (710)        (245)        (331)         (58)
    Capital expenditures on foreclosed real estate                   (10)         (57)           -            -
    Proceeds from sale of real estate owned                           18          149            4            -
                                                              ----------   ----------   ----------   ----------
      Net cash from investing activities                          (2,432)      (8,110)        (363)      (5,558)

CASH FLOWS FROM FINANCING ACTIVITIES
    Net increase in deposits                                      10,312        5,961        2,613        2,567
    Net increase (decrease) in advance payments by
      borrowers for insurance and taxes                             (191)        (177)         305          292
    Net change on advances from Federal
      Home Loan Bank                                              (8,000)       2,100       (1,700)        (100)
    Issuance of common stock, net of costs                         1,724            -        1,724            -
    Issuance of debentures, net of costs                           3,153            -        3,153            -
    Purchase of Bank stock                                        (3,943)           -       (3,943)           -
    Dividends paid                                                  (164)         (66)           -          (22)
                                                              -----------  -----------  ----------   ----------
       Net cash from financing activities                          2,891        7,818        2,152        2,737
                                                              ----------   ----------   ----------   ----------

Change in cash and cash equivalents                                  430         (435)       1,482       (1,755)

Cash and cash equivalents at beginning of period                   4,431        2,806        3,379        4,126
                                                              ----------   ----------   ----------   ----------

Cash and cash equivalents at end of period                    $    4,861   $    2,371   $    4,861   $    2,371
                                                              ==========   ==========   ==========   ==========
</TABLE>


                                       6

<PAGE>



                       THE BRYAN-COLLEGE STATION FINANCIAL
                                 HOLDING COMPANY
                          BRYAN/COLLEGE STATION, TEXAS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial  information and with the  instructions  to Form 10-QSB.  Accordingly,
they do not include all the  information  and  footnotes  required by  generally
accepted accounting principles for complete financial statements.

In the opinion of management,  the unaudited  consolidated  financial statements
contain  all  adjustments  (consisting  only of  normal  recurring  adjustments)
necessary to present fairly the financial condition of The Bryan-College Station
Financial Holding Company (the Company) and its wholly-owned  subsidiary,  First
Federal Savings Bank,  Bryan/College  Station,  Texas (the Bank), as of June 30,
1998 and September 30, 1997,  and the results of its  operations  and cash flows
for the nine-month and three-month periods ended June 30, 1998 and 1997.

On April 1, 1998,  the Company  issued 200,000 shares of common stock at $10 per
share and 3,629  debentures at $1,000 per unit. The Debentures  bear an interest
rate of 11.5% and mature in 2003. Each Debenture includes detachable warrants to
purchase 9 shares of Company  common stock at $12.50 per share.  Net proceeds to
the Company  totaled  $1.7 million and $3.2 million for the common stock and the
Debentures, respectively.

Concurrent  with the  offerings,  the Company  acquired  75,784 shares of common
stock of the Bank in exchange  for 189,346  shares of Company  common  stock and
purchased  the  remaining  163,828  shares of the Bank's  common  stock for cash
totaling $3.9 million.

NOTE 2 - ALLOWANCE FOR LOAN LOSSES

The summary of changes in the allowance for loan losses is as follows:

<TABLE>
<CAPTION>
                                                                                       Nine months ended
                                                                                           June  30,
                                                                                        (In thousands)
                                                                                       1998          1997
                                                                                       ----          ----
<S>                                                                                 <C>          <C>      
         Balances, beginning of period                                              $     273    $     247
         Provision charged to operations                                                   79           17
         Charge-offs                                                                      (74)          (4)
         Recoveries                                                                        25            8
                                                                                    ---------    ---------
             Balances, end of period                                                $     303    $     268
                                                                                    =========    =========
</TABLE>


                                       7

<PAGE>



                       THE BRYAN-COLLEGE STATION FINANCIAL
                                 HOLDING COMPANY
                          BRYAN/COLLEGE STATION, TEXAS


NOTE 3 - CAPITAL REQUIREMENTS

Pursuant to federal  regulations,  savings institutions must meet three separate
capital  requirements.  The following is a reconciliation  of the Bank's capital
under generally accepted  accounting  principles (GAAP) to regulatory capital at
June 30, 1998.

<TABLE>
<CAPTION>
                                                                               Core                Risk based
                                                                              Capital                Capital
                                                                              -------                -------
                                                                                      (In thousands)
<S>                                                                        <C>                    <C>       
       GAAP capital                                                        $     5,119            $    5,119

       General valuation allowance                                                   -                   303
                                                                           -----------            ----------

       Regulatory capital                                                        5,119                 5,422

       Minimum capital requirement                                               3,112                 5,100
                                                                           -----------            ----------

       Excess regulatory capital over
         minimum requirement                                               $     2,007            $      322
                                                                           ===========            ==========
</TABLE>


NOTE 4 - EARNINGS PER COMMON SHARE

A  reconciliation  of the  numerator and  denominator  of the earning per common
share  computation  for the three and nine month periods ended June 30, 1998 and
1997 is presented below:

<TABLE>
<CAPTION>
                                                              Three months ended         Nine months ended
                                                                   June 30,                  June 30,
                                                             1998           1997       1998            1997
                                                             ----           ----       ----            ----
<S>                                                       <C>            <C>         <C>            <C>      
Earnings per common share
    Net Income (loss)                                     $     (21)     $     174   $     254      $     469
    Preferred stock cash dividends                                -            (22)        (44)           (66)
                                                          ---------      ---------   ---------      ---------

Net income (loss) attributable to
    common shareholders                                   $     (21)     $     152   $     210      $     403
                                                          ==========     =========   =========      =========

Weighted average common shares
    Outstanding                                             389,436        599,030     462,499        599,030
                                                          ---------      ---------   ---------      ---------
         Basic earnings (loss) per share                  $    (.05)     $    .25    $    .45       $     .67
                                                          ==========     ========    ========       =========
</TABLE>


                                       8

<PAGE>



                       THE BRYAN-COLLEGE STATION FINANCIAL
                                 HOLDING COMPANY
                          BRYAN/COLLEGE STATION, TEXAS


NOTE 4 - EARNINGS PER COMMON SHARE (CONTINUED)

<TABLE>
<CAPTION>
                                                              Three months ended         Nine months ended
                                                                   June 30,                  June 30,
                                                             1998           1997       1998            1997
                                                             ----           ----       ----            ----
<S>                                                       <C>            <C>         <C>            <C>      
Net income attributable to common
    Shareholders                                          $     (21)     $     152   $     210      $     403
                                                          ==========     =========   =========      =========

Weighted average common shares
    Outstanding                                             389,436        599,030     462,499        599,030

Add effect of stock options                                       -         12,697           -         12,697
                                                          ---------      ---------   ---------      ---------

Total weighted average shares
    Outstanding                                             389,436        611,727     462,499        611,727
                                                          ---------      ---------   ---------      ---------

         Diluted earnings (loss) per share                $    (.05)     $    .25    $      .45     $     .66
                                                          ==========     ========    ==========     =========
</TABLE>



                                       9

<PAGE>
ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

GENERAL

     The Bryan-College  Station  Financial Holding Company (the "Company"),  was
formed at the direction of First  Federal  Savings  Bank,  Bryan,  Texas ("First
Federal" or the "Bank"),  for the purpose of owning all the  outstanding  common
stock of First Federal. The Company was incorporated under the laws of the State
of Delaware  and  generally  is  authorized  to engage in any  activity  that is
permitted by the Delaware General Corporation Law. On April 1, 1998, the company
issued 200,000 shares of common stock at $10 per share and 3,629  denbentures at
$1,000 per unit.  The  Debentures  bear an interest  rate of 11.5% and mature in
2003.  Each  Debenture  includes  detachable  warrants to  purchasae 9 shares of
company  common stock at $12.50 per share.  Net proceeds to the Company  totaled
$1.7 million and $3.2 million for common stock and the Debentures, respectively.
Concurrent  with the  offerings,  the Company  acquired  75,784 shares of common
stock of the Bank in exchange  for 189,346  shares of Company  common  stock and
purchased  the  remaining  163,828  shares of the Bank's  common  stock for cash
totaling  $3.9 million.  The Company has not engaged in any material  operations
prior to the  recapitalization  April 1,  1998,  and at March 31,  1998,  had no
significant  assets.  Accordingly,  the  following  discussion  focuses  on  the
financial  condition  and results of operations of the Bank for periods prior to
April 1, 1998.

     The Company's  major goals are to provide high quality full service  retail
banking on a profitable basis to its customers  (predominantly  middle class and
blue  collar  individuals  and small to  medium-sized  businesses)  through  its
readily  accessible  offices  located in the most  northern and southern part of
Bryan and in College Station and its principal offices centrally located between
the two cities.  The Company  intends to continue to focus  primarily  on one to
four-family residential lending, direct and indirect consumer lending, including
home improvement loans, constructions loans and small to medium-sized commercial
business  loans,  some of which  are  partially  guaranteed  by the  U.S.  Small
Business  Administration.  The Company also  intends to focus on  expanding  the
credit- default insured indirect  automobile loan program for subprime borrowers
("Second  Chance Auto Loans"),  so that it can increase  profitability  of First
Federal through  higher-yielding  portfolio loans. The Company may elect to sell
some of these loans in the future to other  lenders..  In addition,  the Company
also seeks to  continue  to  maintain  its  current  level of asset  quality and
continue to minimize,  to the extent possible,  its  vulnerability to changes in
interest rates in order to continue to maintain a reasonable  spread between its
average yield on loans and  securities  and its average cost of interest paid on
deposits and borrowings.

     Like all financial institutions,  the Company's subsidiary,  First Federal,
has always been  subject to  interest  rate risk  because  its  interest-bearing
liabilities  (primarily  deposits) mature or reprice at different times, or on a
different  basis  than its  interest-earning  assets  (primarily  loans).  First
Federal's  net  income  is also  affected  by gains  and  losses  on the sale of
residential  mortgage  loans and loan servicing  rights to the secondary  market
nationally, investments, provisions expensed for loan and other repossessed real
estate and  repossessed  vehicle  losses,  service  charge fees,  loan servicing
income,  fees for other  financial  services  rendered,  operating  expenses and
income taxes.


                                       10

<PAGE>



The Company believes that building its  subsidiary's  earnings from net interest
income and noninterest income, (such as the profitable sale of long-term,  fixed
rate  and  adjustable  rate  loans  to  the  secondary   market),   utilizing  a
fully-staffed  residential  loan  department and SBA business loan staff,  along
with income from service  charges and fees on checking  accounts from its recent
transition to full service retail banking and its new North Bryan Branch,  while
continuing to reduce  operating  expenses,  can provide a stable  foundation for
successful  operations.  Noninterest  income can provide an excellent  source of
secondary  income  through  fees charged to  customers  for  services  rendered,
without requiring additional capital.

     The Company's net interest income has historically  been dependent  largely
upon the  difference  ("spread")  between the average yield earned  primarily on
loans,  and to a lesser extent  mortgage-backed  securities and other securities
("interest-earning  assets"),  and the  average  rate paid on savings  and other
deposits  and  borrowings  ("interest-bearing  liabilities"),  as  well  as  the
relative  amounts of such  assets and  liabilities.  The  interest  rate  spread
between interest-earning assets and interest-bearing  liabilities is impacted by
several factors  including  economic and  competitive  conditions that influence
interest rates,  loan demand,  deposit flows,  regulatory  developments  and the
types of assets and liabilities on its balance sheet.

     First Federal's recent  restructuring and expansion to provide full-service
banking  and  more  convenience  to  its  customers  through  expanded  drive-in
facilities, a new North Bryan full-service branch, expansion of its personnel in
Second Chance Auto Lending,  mortgage  lending,  additional and more experienced
tellers,  and  additional  personnel  in new  accounts,  accounting  and  direct
consumer  lending,  has caused planned  increases in First  Federal's  operating
expense levels.  First Federal believes these increased operating expenses to be
necessary in order to plan for growth and profitability in the future. There can
be no assurance that these objectives will be achieved.  As a result, as of June
30, 1998, the Company's  operating  expense  exceeded its' net interest  income.
Periodically, the Company relies on its noninterest income for net income.

FINANCIAL CONDITION

     First Federal's total assets  increased by $3.5 million to $78.6 million at
June 30, 1998 from $75.1  million at September 30, 1997, an increase of 5%. This
increase consisted primarily of an increase in loans receivable and premises and
equipment, partially offset by a decrease of Federal Home Loan Bank stock.

     Loans  receivable  (excluding  residential  mortgage loans held for sale at
month end to the secondary  market)  increased  $2.6 million to $67.6 million at
June 30, 1998, compared to $65.0 million at September-30,  1997. During the nine
months ended June 30, 1998,  First Federal  originated $21.3 million of mortgage
loans, including $19.3 million secured by one- to four-family residences, and in
addition  originated  $14.3  million  in  consumer  loans  and $5.1  million  in
commercial (business) loans.  Approximately $1.4 million of these mortgage loans
represented refinancings of existing First Federal loans. Premises and equipment
increased due to  improvements to the existing main office and the opening of an
additional full-service branch in north Bryan in June 1998 to provide additional
convenience to its' customers and to plan for future growth.


                                       11

<PAGE>


     Deposits  increased  $10.3  million,  or 17.5% to $69.1 million at June 30,
1998,  compared to $58.8 million at September 30, 1997, as a result of increased
marketing  of  short-term  certificates  of  deposits--along  with new  checking
accounts.  Other  liabilities  deceased $3.9 million to $7.5 million at June 30,
1998, compared to $11.4 million at September-30,  1997, primarily as a result of
a $8.0 million  decrease in advances  from the Federal Home Loan Bank of Dallas,
which was funded by the increase in the Bank's deposits, partially offset by the
issuance of $3.6 million in Debentures to fund the purchase of Bank stock.

     Stockholders'  equity in the Company decreased $3.0 million to $1.8 million
at June 30, 1998 from $4.8  million at  September  30,  1997.  The  decrease was
largely  attributable to the purchase of approximately  68% of the Bank's common
stock by the Company  totaling $3.9 million.  This decrease was partially offset
by net income of $254,000  for the nine months  ended June 30, 1998 and proceeds
from the issuance of $2,000,000 of new common stock of the Company, netting $1.7
million.  Stockholders  equity was also reduced by the  reclassification  of the
Bank's existing  preferred stock of $872,000 as a minority interest liability in
the consolidated financial statements,  resulting from the Company's acquisition
of the Bank's common stock on April 1, 1998.

ASSET/LIABILITY MANAGEMENT

     The Company's subsidiary,  First Federal, like all financial  institutions,
is  subject  to  interest  rate  risk to the  degree  that its  interest-bearing
liabilities  (deposits) mature or reprice more rapidly, or on a different basis,
than its interest-earning  assets,  (loans), some of which may be longer term or
fixed  interest  rate.  As a continuing  part of its financial  strategy,  First
Federal  continually  considers  methods of  managing  any such  asset/liability
mismatch,  consistent with maintaining  acceptable levels of net interest income
and interest rate risk.

     In order to monitor and manage interest rate  sensitivity and interest rate
spread, First Federal created an Asset/Liability Committee ("ALCO"), composed of
its President/CEO, Senior Vice President/Financial, Executive Vice President and
one  outside  Director.  The  responsibilities  of the ALCO are to assess  First
Federal's  asset/liability mix and recommend strategies that will enhance income
while managing First Federal's vulnerability to changes in interest rates.

     First Federal's  asset/liability  management strategy has two goals. First,
the Bank seeks to build its net interest  income and noninterest  income,  while
adhering to its underwriting  and lending  guidelines.  Second,  and to a lesser
extent,  First Federal seeks to increase the interest  rate  sensitivity  of its
assets and decrease the interest rate  sensitivity  of its  liabilities so as to
reduce First Federal's overall  sensitivity to changes in interest rates.  There
can be no assurance that this strategy will achieve the desired results and will
not result in  substantial  losses in the event of an increase in interest  rate
risk.

     As part of this  strategy,  management  has recently  emphasized  growth in
noninterest-bearing deposits such as checking accounts or lower interest-bearing
savings  deposits  by  offering  full  service  retail  banking to its  targeted
customer  base. In order to minimize the possible  adverse impact that a rise in
interest  rates may have on net interest  income,  First  Federal has  developed
several strategies


                                       12

<PAGE>



to manage its interest rate risk. Primarily,  First Federal is currently selling
all  newly-originated  one-to four-family  residential  mortgage loans which are
saleable in the secondary  market--most of which are long-term fixed-rate loans.
In addition,  First Federal  currently  offers in-house  (portfolio)  three-year
fixed rate balloon loans and other adjustable rate loans, and has implemented an
active, diversified short-term consumer lending program, giving First Federal an
opportunity to reprice its loans on a more frequent basis.

NET PORTFOLIO VALUE

     The Office of Thrift  Supervision  (the  "OTS"),  First  Federal's  primary
regulator  has issued a proposed  rule for the  calculation  of an interest rate
risk component for institutions with a greater than "normal" (i.e., greater than
2%)  level  of  interest  rate  risk  exposure  ("NPV").  The  OTS  has  not yet
implemented the capital  deduction for interest rate risk. NPV is the difference
between incoming and outgoing discounted cash flows from assets, liabilities and
off-balance sheet contracts. This approach calculates the difference between the
present  value of  expected  cash flows from  assets  and the  present  value of
expected  cash flows from  liabilities,  as well as cash flows from  off-balance
sheet  contracts.  Under OTS  regulations,  an  institution's  "normal" level of
interest  rate risk in the event of an  assumed  change in  interest  rates is a
decrease in the  institution's  NPV in an amount not exceeding 2% of the present
value of its assets.  The amount of that deduction is one-half of the difference
between (a) the institution's  actual  calculated  exposure to a 200 basis point
interest rate increase or decrease  (whichever  results in the greater pro forma
decrease  in NPV)  and (b) its  "normal"  level of  exposure  which is 2% of the
present value of its assets.

     Presented  below,  as of March 31, 1998, the date of the latest OTS report,
is an analysis of First  Federal's  interest rate risk as measured by changes in
NPV for instantaneous  and sustained  parallel shifts in the yield curve, in 100
basis point  increments,  up and down 400 basis  points in  accordance  with OTS
regulations.  As illustrated in the table, NPV is more sensitive to rising rates
than declining rates. This occurs principally because, as rates rise, the market
value of  fixed-rate  loans  declines due to both the rate  increase and slowing
prepayments. When rates decline, First Federal does not experience a significant
rise in market value for these loans because borrowers prepay at relatively high
rates. OTS assumptions are used in calculating the amounts in this table.


                                       13

<PAGE>


                                                           Acceptable Limits
  Change in                                              Established by Board of
 Interest Rate                     At Mar. 31, 1998             Directors   
(Basis Points)                    $ Change   %Change           % Change
--------------                    --------   --------     ----------------------
               (Dollars in Thousands)

  +400   $7,326                     $(604)     (8)%               (75)%
  +300    7,625                      (305)     (4)                (50)
  +200    7,856                       (74)     (1)                (30)
  +100    7,978                        48       1                 (15)
   ---    7,930                        ---     ---                ---
  -100    7,813                      (117)     (1)                (15)
  -200    7,878                       (52)     (1)                (30)
  -300    8,154                       224       3                 (50)
  -400    8,500                       570       7                 (75)


     Management  reviews the OTS  measurements on a quarterly basis. In addition
to monitoring  selected measures on NPV, management also monitors effects on net
interest income resulting from increases or decreases in rates.  This measure is
used in conjunction with NPV measures to identify  excessive interest rate risk.
In the event of a 400 basis point change in interest rates,  First Federal would
experience a 7% increase (or  $570,000) in NPV in a declining  rate  environment
and an 8% decrease (or $604,000) in a rising rate  environment.  As of March 31,
1998, an increase in interest rates of 200 basis points would have resulted in a
1% decrease (or $74,000) in the present value of First Federal's assets, while a
change in the interest  rates of negative  200 basis points would have  resulted
also in a 1% decrease  in the present  value of First  Federal's  assets.  These
levels are within the limits acceptable to the Board of Directors.

     In  evaluating  First  Federal's  exposure to interest  rate risk,  certain
shortcomings  inherent  in the method of  analysis  presented  in the  foregoing
tables must be considered.  For example, although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and  liabilities  may  fluctuate in advance of changes in market
interest  rates,  while  interest rates on other types may lag behind changes in
market rates.  Further,  in the event of a change in interest rates,  prepayment
and early  withdrawal  levels  would  likely  deviate  significantly  from those
assumed in calculating the table. For example,  projected passbook, money market
and checking  account  maturities may also  materially  change if interest rates
change.  Finally,  the  ability  of many  borrowers  to  service  their debt may
decrease in the event of an interest rate increase.  First Federal considers all
of these factors in monitoring its exposure to interest rate risk.

NON-PERFORMING ASSETS AND LOAN LOSS PROVISION

     Management  establishes specific reserves for the estimated losses on loans
when it  determines  that losses are  anticipated  on these  loans.  The Company
calculates  any  allowance  for  possible  loan  losses  based upon its  ongoing
evaluation of pertinent factors underlying the types and


                                       14

<PAGE>


quality of its loans, with particular emphasis on average historical loan losses
during the preceding  three years.  These factors include but are not limited to
the current and anticipated economic conditions,  including uncertainties in the
real  estate  market,  the  level of  classified  assets,  historical  loan loss
experience,   a  detailed   analysis   of   individual   loans  for  which  full
collectability  may not be assured,  a  determination  of the existence and fair
value of  collateral,  the ability of the  borrower to repay and the  guarantees
securing  such loans.  Management,  as a result of this review  process,  and in
light of uncertain economic conditions,  recorded a provision for loan losses in
the amount of $50,000 for the three months  ending June 30, 1998, as compared to
a $15,000 loan loss  provision  for the three months  ending June 30, 1997.  The
Bank's loan loss reserve  balance as of June 30, 1998 was  $303,000  compared to
the  September  30, 1997 loan loss  reserve of  $273,000,  or 0.45% and 0.42% of
total loans,  respectively.  Total  non-performing  assets  increased during the
three month  period ended June 30, 1998 to $1.7 million or 2.16% of total assets
as compared to $1.3 million or 1.71% of total assets at September 30, 1997. Most
of this increase in  non-performing  assets was attributable to several past-due
residential  mortgage loans, the unpaid principal  balance of which is less than
the appraised value. Historical actual charge-offs (net of recoveries) from loan
losses over the past three fiscal years ended 9/30/97 have averaged only $13,000
per year on an average loan portfolio of $50.9 million.

     The Company will continue to monitor and adjust its allowance for losses on
loans as the Board of Director's and  management's  analysis of its growing loan
portfolio  and overall  economic  conditions  dictate.  In addition,  regulatory
agencies, as an integral part of their examination process,  periodically review
the Bank's  allowance for loan losses.  Such agencies may require the Company to
recognize   additions  to  the  allowance  based  upon  their  judgment  of  the
information  available  to them at the  time of  their  examination.  Therefore,
although  the Company  maintains  its  allowance  for losses on loans at a level
which it considers to be adequate to provide for  potential  losses,  in view of
the  continued  uncertainties  in  the  economy  generally  and  the  regulatory
uncertainty  pertaining  to reserve  levels for the thrift  industry  generally,
there can be no absolute  assurance  that  losses will not exceed the  estimated
amounts  or the  Bank  will  not be  required  to  make  additional  substantial
additions to its allowance for losses on loans in the future.

RESULTS OF OPERATIONS

     The  Company's  results of operations  are  primarily  dependent on its net
interest   income--which   is  the  difference   between   interest   income  on
interest-earning  assets and interest expense on  interest-bearing  liabilities.
Interest income is a function of the average balances of interest-earning assets
(primarily loans) outstanding during the period and the average yields earned on
such  assets.   Interest  expense  is  a  function  of  the  average  amount  of
interest-bearing  liabilities (primarily deposits) outstanding during the period
and the  average  rates paid on such  liabilities.  The Company  also  generates
noninterest  income,  such as income from  service  charges and fees on checking
accounts,  loan servicing and other fees and charges and gains on sales of loans
and servicing rights.  The Company's net income is also affected by the level of
its noninterest expenses, such as employee salaries and benefits,  occupancy and
equipment expenses, and federal deposit insurance premiums.


                                       15

<PAGE>



COMPARISON OF NINE MONTHS ENDED JUNE 30, 1998 TO JUNE 30, 1997

     The Company reported net income after taxes of $254,000 for the nine months
ended June 30,  1998,  a decrease  of  $215,000  as  compared to $469,000 in net
income  reported  for the nine  months  ended June 30,  1997.  The  decrease  in
earnings,  as discussed in more detail below, resulted primarily from a $602,000
increase in the Company's interest expense on increased deposits and interest on
its new debentures,  and a $763,000 increase in noninterest  expense,  partially
offset by an  increase  of $1.1  million in  interest  income and an increase of
$40,000 in noninterest income.

     Net interest income  increased  $459,000 to $2.6 million for the nine month
period ended June 30, 1998 from $2.1 million for the prior period in 1997.  This
increase was  attributable  primarily to an increase in interest earned on loans
receivable,  primarily  as a result of an increase in the amount of  outstanding
loans  partially  offset  by  increases  in  volumes  of the  Company's  deposit
liabilities  and  Federal  Home  Loan  Bank  advances.  This  increase  was also
partially  offset by interest expense of the Debentures as part of the Company's
reorganization.  For the nine months ended June 30, 1998, the spread between the
average yield on interest earning assets and the average cost of funds decreased
to 4.65% at June 30, 1998 from 4.81% at June 30, 1997.

     Noninterest  income increased $57,000 to $646,000 for the nine months ended
June 30,  1998 from  $589,000  for the nine  months  ended June 30,  1997.  This
increase can be  attributed  to a $36,000  increase in net gain on sale of loans
and  mortgage  servicing  rights  and a $41,000  increase  in other  noninterest
income,  as a result of  recognizing  excess  auto  dealer  reserves  due to the
repayment  of auto loan  balances.  The Company  recorded a $20,000  decrease in
service charges on checking accounts during the nine months ended June 30, 1998,
as a result of a change in policy to more accurately  reflect the collectibility
of service charges on a current basis.

     Noninterest  expense increased $780,000 to $2.8 million for the nine months
ended June 30, 1998 from $2.0  million for the nine months  ended June 30, 1997.
This increase can primarily be attributed to a $388,000 increase in compensation
and benefits expense due to increases in salaries to be able to meet competitive
financial  institutions'  salaries  and retain key  people  with First  Federal,
additional  staffing for the  recently  expanding  mortgage  and  consumer  loan
departments,  and in particular  the Second Chance Auto Loan Program,  a $64,000
increase in occupancy and equipment expense,  due to the recent opening of First
Federal's new branch in North Bryan, a $41,000 increase in professional  fees, a
$18,000  increase  in data  processing  expense  due to the Bank's  growth and a
$266,000  increase  in  other  noninterest  expense.   This  increase  consisted
primarily of increases in office supplies, postage, telephone, etc. which relate
to the growth in the Company's asset size,  $33,000 relating to the amortization
of debt issue cost and $20,000 in franchise tax expense  relating to the holding
company.  This was  partially  offset by a $8,000  decrease  in federal  deposit
insurance premiums.  This additional  noninterest expense was incurred primarily
as an  investment  in the Bank's  plans for future  growth and future  increased
profitability. There can be no assurance that these objectives can be achieved.

     The Company is  currently  in the  process of  conducting  a  comprehensive
review of its computer systems to identify the systems that could be affected by
the "Year 2000" potential  issue. The Year 2000 potential issue is the result of
computer programs being written using two digits


                                       16

<PAGE>


rather than four to define the applicable  year.  Any of the Company's  programs
that have time  sensitive  software may  recognize a date using "00" as the year
1900  rather  than the year  2000.  This  could  result  in  system  failure  or
miscalculations.  Management  anticipates  that the  enhancements  necessary  to
prepare its systems for the year 2000 will be completed in a timely manner.

     The Company is also aware of the risks to third parties,  including vendors
(and to the extent  appropriate,  depositors  and  borrowers)  and the potential
adverse  impact on the  company  resulting  from  failures  by these  parties to
adequately  address  these risks.  The Company has been  communicating  with its
outside data processing  service bureau,  as well as other  third-party  service
providers (and to the extent appropriate,  depositors and borrowers),  to assess
their  progress in evaluating  their  systems and  implementing  any  corrective
measures required by them to be prepared for the year 2000. To date, the Company
has  not  been  advised  by  any of its  primary  vendors  that  there  are  any
unmitigated risks regarding  potential issues related to the Year 2000. However,
no assurance  can be given as to the adequacy of any plans or to the  timeliness
of their implementation.

     The Company  anticipates that it may incur additional  internal staff costs
as well as consulting and other expenses related to the  enhancements  necessary
to  prepare  the  systems  for the Year  2000.  Based on the  Company's  current
knowledge and  investigations,  any additional expense relating to the Year 2000
potential  issues is not  expected  to have a material  impact on the  Company's
financial position or results of operations.

     Income tax expense decreased $111,000 to $131,000 for the nine months ended
June 30, 1998 from  $242,000 for the nine month ended June 30, 1997.  The period
reflected a tax rate of 34.0% for June 30, 1998 and June 30, 1997, respectively.

COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 TO JUNE 30, 1997

     The Company  reported  net income  after taxes of  ($21,000)  for the three
months  ended  June-30,  1998, a decrease of $195,000 as compared to $174,000 in
net income  reported for the three  months ended June 30, 1997.  The decrease in
earnings,  as discussed in more detail below, resulted primarily from a $226,000
increase in the Company's interest expense on deposits and its' debentures and a
$392,000 increase in noninterest expense (as discussed further below), partially
offset by an increase of $343,000 in interest  income and an increase of $14,000
in noninterest income.

     Net  interest  income  increased  $117,000 to $845,000  for the three month
period ended  June-30,  1998 from  $728,000  for the prior period in 1997.  This
increase was  attributable  primarily to an increase in interest earned on loans
receivable  primarily  as a result of an increase  in the amount of  outstanding
loans,  partially  offset by an  increase  in volumes of the  Company's  deposit
liabilities.  For the three months ended June 30, 1998,  the spread  between the
average yield on interest earning assets and the average cost of funds decreased
to 4.65% at June 30, 1998 from 4.81% at June 30, 1997.

     Noninterest income increased $31,000 to $247,000 for the three months ended
June 30, 1998 from  $216,000  for the three  months  ended June 30,  1997.  This
increase can be attributed to a


                                       17

<PAGE>


$36,000 increase in service charges on checking accounts,  a $16,000 net gain on
sale of loans and mortgage  servicing  rights,  offset by a $21,000  decrease in
other noninterest income.

     Noninterest expense increased $409,000 to $1.1 million for the three months
ended June 30, 1998 from $665,000 for the three months ended June 30, 1997. This
increase can primarily be attributed to a $167,000  increase in compensation and
benefits  expense due to increase in salaries for key people in the Bank to meet
competition  and retain them in the Bank,  the recently  expanded  mortgage loan
department,  additional staffing for the expanding consumer loan department, and
in particular the Bank's profitable Second Chance Auto Loan Program,  additional
and more experienced tellers,  expansion of the new accounts and loan collection
department, a $42,000 increase in occupancy and equipment expense related to the
Bank's new North Bryan branch,  a $27,000  increase in  professional  fees and a
$167,000  increase  in  other  noninterest  expense.   This  increase  consisted
primarily of increases in office supplies, postage, telephone, etc. which relate
to the growth in the Company's asset size,  $33,000 relating to the amortization
of debt issue cost and $20,000 in franchise tax expense  relating to the holding
company.

     Income tax expense/(benefits) was ($11,000) for the three months ended June
30, 1998,  as compared to $90,000 for the three months ended June 30, 1997.  The
benefit  for the  current  period was a result of a net loss  before tax for the
three months ended June 30, 1998.  The period  reflected a tax rate of 34.1% and
(34.4%) for June 30, 1998 and June 30, 1997, respectively.

LIQUIDITY AND CAPITAL RESOURCES

     First Federal's primary sources of funds are savings and checking accounts,
principal  and  interest  payments  on  loans  and  mortgage-backed  securities,
proceeds  from  sales  of  loans  and  other  funds  provided  from  operations.
Additionally,  First  Federal  borrows funds from the FHLB of Dallas or utilizes
other borrowing of funds based on need,  comparative  costs and  availability at
the time.

     While  scheduled  loan  and   mortgage-backed   repayments  and  short-term
investments, and FHLB borrowings are relatively stable sources of funds, deposit
flows  are  unpredictable  and are a  function  of  external  factors  including
competition,   the  general  level  of  interest  rates  and  general   economic
conditions.

     The Company  maintains  investments in liquid assets based on  management's
assessment of cash needs,  expected  deposit  flows,  available  yield on liquid
assets (both short-term and long-term) and the objectives of its asset/liability
management  program.  Several  options  are  available  to  increase  liquidity,
including reducing loan originations,  increasing loan sales, increasing deposit
marketing activities, and increasing borrowings.

     Federal regulations require insured institutions to maintain minimum levels
of  liquid  assets.  As of June  30,  1998,  the  minimum  regulatory  liquidity
requirement  was 4% of the sum of First  Federal's  average daily balance of net
withdrawable deposit accounts and borrowing payable in one year or less. At June
30, 1998,  First Federal's  regulatory  ratio was 4.52%.  First Federal uses its
capital resources  principally to meet its ongoing  commitments to fund maturing
certificates  of  deposits  and  deposit  withdrawals,  repay  borrowings,  fund
existing and continuing loan


                                       18

<PAGE>


commitments,  maintain its liquidity and meet  operating  expenses.  At June 30,
1998,  First Federal had  commitments to originate  loans totaling $4.3 million.
First Federal also had $4.5 million of  outstanding  unused lines of credit.  If
needed for  liquidity  purposes,  First  Federal was  eligible  to borrow  $25.5
million  from the  Federal  Home Loan Bank of  Dallas  at June 30,  1998.  First
Federal  considers its  liquidity,  sources of additional  liquidity and capital
resources to be adequate to meet its  foreseeable  and  long-term  needs.  First
Federal expects to be able to fund or refinance, on a timely basis, its material
commitments and long-term liabilities.

     At June 30,  1998 the Bank had Tier 1 (Core)  Capital of $5.1  million,  or
6.58% of  total  assets  which  was  $2.0  million  above  the  minimum  capital
requirement of $3.1 million or 4% of total assets.

     At June 30, 1998, the Bank had total risk based capital of $5.4 million and
risk  weighted  assets of $63.7  million or total risk based capital of 8.51% of
risk  weighted  assets.  This amount was $322,000  above the minimum  regulatory
requirement  of $5.1  million,  or 8.0% of risk  weighted  assets.

          Net proceeds  received  from the Company  initial  public  offering of
common stock and Debentures after cash payments to First Federal's  stockholders
and expenses  totaled  $694,000.  Management  believes that dividends from First
Federal will be adequate to meet the Company's foreseeable liquidity needs.

NEW ACCOUNTING PRONOUNCEMENTS

     On March 3, 1997, the Financial  Accounting  Standards  Board (FASB) issued
Statement 128, "Earnings Per Share", which is effective for financial statements
beginning  with year end 1997.  Statement  128  simplifies  the  calculation  of
earnings  per share  (EPS) by  replacing  primary  EPS with basic  EPS.  It also
requires  dual  presentation  of basic EPS and  diluted  EPS for  entities  with
complex  capital  structures.  Basic EPS include no dilution  and is computed by
dividing income available to common shareholders by the weighted-average  common
shares  outstanding for the period.  Diluted EPS reflects the potential dilution
of securities that could share in earnings,  such as stock options,  warrants or
other common stock equivalents. Statement 128 has had little impact on the Banks
earnings per share calculations. All prior period EPS data have been restated to
conform with the new presentation.

     Statement   of  Financial   Accounting   Standards   No.  130,   "Reporting
Comprehensive Income," was issued by the Financial Accounting Standards Board in
1977.  This  Statement  established  standards  for  reporting  and  display  of
comprehensive  income  and  its  components  in a full  set  of  general-purpose
financial  statements.  It does not address issues of recognition or measurement
for  comprehensive  income and its  components.  Statement  130 is effective for
fiscal years  beginning  after  December 15, 1997.  Since the provisions of this
Statement are disclosure  oriented,  it will have no impact on the operations of
the Bank.

     Statement of Financial  Accounting  Standards No. 131,  "Disclosures  about
Segments of an Enterprise  and Related  Information,"  was issued in 1997 by the
Financial Accounting Standards Board. This Statement  established  standards for
the way that public  business  enterprises  report  information  about operating
segments in annual financial statements and requires that those


                                       19

<PAGE>


enterprises  report selected  information  about  operating  segments in interim
financial  reports issued to  shareholders.  It also  establishes  standards for
related  disclosures  about products and services,  geographic  areas, and major
customers.  Statements 131 is effective for periods beginning after December 15,
1997.  Management  does not believe that the  provisions  of this  Statement are
applicable to the Bank,  since  substantially  all of the Bank's  operations are
banking activities.

          Statement of Financial  Accounting  Standards No. 133, "Accounting for
Derivative  Instruments and Hedging  Activities" (SFAS No. 133"), issued in June
1998,  must be  adopted  as of  January  1,  2000.  This  Statement  establishes
accounting and reporting standards for derivative financial  instruments and for
hedging  activities.  Upon adoption of the Statement,  all  derivatives  must be
recognized  at fair value as either  assets or  liabilities  in the statement of
financial  position.  Changes in the fair value of derivatives not designated as
hedging instruments are to be recognized currently in earnings.  Gains or losses
on  derivatives  designated as hedging  instruments  are either to be recognized
currently  in  earnings  or  are  to  be  recognized  as a  component  of  other
comprehensive  income,  depending on the intended use of the derivatives and the
resulting designations. Upon adoption, retroactive application of this Statement
to  financial   statements  of  prior  periods  is  not  permitted.   Management
anticipates  the adoption of SFAS No. 133 will not have a material impact on the
financial condition or operations of the Bank.


SAFE HARBOR STATEMENT

          This report contains forward-looking  statements within the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities  Exchange  Act  of  1934,  as  amended.   The  Company  intends  such
forward-looking  statements  to be  covered  by the safe  harbor  provision  for
forward-looking  statements  contained in the Private  Securities  Reform Act of
1995,  and is  including  this  statement  for  purposes  of these  safe  harbor
provisions.  Forward-looking statements,  which are based on certain assumptions
and describe  future plans,  strategies  and  expectations  of the Company,  are
generally  identifiable  by use  of the  words  "believe,"  "expect,"  "intend,"
"anticipate,"  "estimate,"  "project"  or  similar  expressions.  The  Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain.  Factors which could have a material adverse affect on the
operations and future prospects of the Company and the subsidiaries include, but
are not limited to, changes in: interest  rates,  general  economic  conditions,
legislative/regulatory  changes,  monetary  and  fiscal  policies  of  the  U.S.
Government,  including  policies of the U.S.  Treasury  and the Federal  Reserve
Board, the quality or composition of the loan or investment  portfolios,  demand
for loan products, deposit flows, competition,  demand for financial services in
the Company's  market area and accounting  principles,  policies and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and could affect the Company's  financial  performance  and cause the
Company's  actual  results for future  periods to differ  materially  from those
anticipated  or projected.  The Company  wishes to caution  readers not to place
undue reliance on any such  forward-looking  statements,  which speak only as of
the date made.

     The Company does not undertake,  and specifically disclaims any obligation,
to  revise  any   forward-looking   statements  to  reflect  the  occurrence  of
anticipated or unanticipated events or


                                       20

<PAGE>

circumstances after the date of such statements.  Further information concerning
the Company and its business, including additional factors that could materially
affect the Company's  financial  results,  is included in the Company's  filings
with the Securities and Exchange Commission.


                                       21

<PAGE>


                           PART II- OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

         None.

ITEM 2.  CHANGES IN SECURITIES

         None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.

ITEM 5.  OTHER INFORMATION

         None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         None.



                                       22

<PAGE>



                                   SIGNATURES


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                           THE BRYAN COLLEGE STATION FINANCIAL  
                                           HOLDING COMPANY


Date:_____________________                 ____________________________________
                                           J. Stanley Stephen
                                           President and Chief Executive Officer


Date:_____________________                 _____________________________________
                                           Mary L. Hegar
                                           Chief Financial Officer